Pages

Friday, September 21, 2012

Economic Policy Debate

Kevin Williamson describes the problem of measuring economic results out of context and when the parts that you should measure are unmeasurable.

"
Which is why even very smart people, such as Atlantic
writers, produce maddening paragraphs, such as this one from Mr.
Thompson: “Well into the 1950s, the top marginal tax rate was above 90%.
Today it’s 35%. But both real GDP and real per capita GDP were growing
more than twice as fast in the 1950s as in the 2000s. At the same time,
the average tax rate paid by the top tenth of a percent fell from about
50% to 25% in the last 60 years, while their share of income increased
from 4.2% in 1945 to 12.3% before the recession.”

All of that is trivially true. The tax code in 2012 is different from
the tax code in 1955. Lots of other things are different, too: Japan
emerged from the postwar rubble to become a major economic power and
then went into gentle decline during the subsequent years, the ruins of
Europe were rebuilt, a European monetary union was created and then
began coming unglued, Germany was reunited, the Soviet Union was
disunited, China began to liberalize its economy, a globalized
information economy emerged with India and South Korea winning
significant places in it, the Internet became a critical economic
reality, the population of the planet more than doubled, worldwide
markets were integrated, standardized containerization revolutionized
shipping, smallpox was eradicated, life expectancies grew in many parts
of the world, U.S. birth rates declined . . . and so on. Telling us that
tax rates were X in the 1950s and Y in 2012, while growth was A in the
1950s and B today, tells us something approximating nothing."

another quote:

"In spite of the massive piles of evidence surrounding them,
politicians routinely tell us that if we will merely give them the power
to do X, then Y surely will follow. The Obama administration predicted that if the stimulus and other policies were enacted, then unemployment would decline to 5.2 percent. (It isn’t 5.2 percent.) Mitt Romney says
that if we enact his agenda, the result will be 4 percent growth.
Personally, I think that politicians should be goosed with a Taser every
time they use the word “percent” in a future-tense sentence. But to be
more charitable, let’s instead conclude that such projections should be
viewed skeptically.

Unhappily, many economists desire to play kingmaker and therefore
lend the prestige of their discipline to the wishful thinking of
politics, where arguments are oversimplified to a point that is
indistinguishable from dishonesty. They are aided in this by journalists
who provide a bridge from the rigorous world of academic research to
the standards-free world of political discourse. The result is something
like a fairy tale or just-so story. That voters choose to accept such
fanciful promises is another piece of evidence that our politics is not
rational but ritual."

***

On another subject, we were taught in business school (big waste of time, money, and effort) to make business plans with projected budgets. Many wondered how we could come up with a budget before we've even seen one month's numbers. If you did not include a projected budget, then your grade suffered. If your budget, for your incredibly stupid company idea, had a projected growth in sales of $5 million each year, then you were complimented on your budget.